• DLT and digital asset’s path to smart custody

September 2019

In the face of declining fee levels and increasing regulatory and market requirements for asset protection and market stability, the securities post-trade industry seeks a sustainable future. Distributed Ledger Technology (DLT) may provide part of the answer by realigning the roles of its participants

In this vein, Deutsche Bank’s new white paper, “Transitioning into the future of securities post-trade: DLT and digital asset’s path to smart custody”, assesses how DLT can help custodian banks, financial market infrastructures (FMIs) and other post-trade industry participants enable growth by changing the basis of competition.

It follows the May 2019 publication of “Transitioning to the future of securities post-trade”, which posed the question: If you can order physical goods online and have them delivered the next day or even the same day on an online retail platform, why should you have to wait two days for electronically delivered securities to arrive in your account?

The latest paper provides a vision for the faster delivery of securities post-trade and indicates how new technologies, specifically digital assets based on DLT, can help further automate post-trade processes and lead to a more sustainable future. Using a bond transaction on DLT as a case study, it explains how custody and settlement processes can be brought into the issuance phase, delivering those sought after efficiencies and bringing the industry closer to an “Amazonised” state.

“Post-trade participants can use DLT and related tools to transform their operating models by aggregating value creation activities to create new internal efficiencies,” says Boon-Hiong Chan, Global Head of Market Advocacy, Securities Services, Deutsche Bank Corporate Bank.

Additionally, new tokenised asset platforms in the over-the-counter (OTC) securities space are adapting the digital asset operational model to deliver horizontally integrated issuance-to-post trade platforms for more seamless client services.

There is much to be accomplished in this road to a more modern post-trade industry and structure. For now, the paper concludes that the industry should:

  • Identify post-trade collaborative pilot areas where concurrent communication and operational processing can practically reduce today’s costs and inefficiencies
  • Explore DLT’s applications to create new products with customised services like tokenised assets and digitised securities. Asset managers, securities issuers such as bond or equity issuers, investors and post-trade service providers such as custodian banks and FMIs can partner to explore and co-create digitised new products and services
  • Review existing laws and regulations pertaining to post-trade activities, which would greatly benefit from cross-expertise collaborations between DLT technologists, “traditional” custodians, CSDs, lawyers, judges and regulators
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